Correlation Between Wyndham Hotels and Royal Caribbean

Can any of the company-specific risk be diversified away by investing in both Wyndham Hotels and Royal Caribbean at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Wyndham Hotels and Royal Caribbean into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wyndham Hotels Resorts and Royal Caribbean Cruises, you can compare the effects of market volatilities on Wyndham Hotels and Royal Caribbean and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Wyndham Hotels with a short position of Royal Caribbean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wyndham Hotels and Royal Caribbean.

Diversification Opportunities for Wyndham Hotels and Royal Caribbean

0.8

Correlation Coefficient

Wyndham Hotels  Royal Caribbean

Very poor diversification

The 3 months correlation between Wyndham and Royal is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises and Wyndham Hotels is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Wyndham Hotels Resorts are associated (or correlated) with Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Wyndham Hotels i.e., Wyndham Hotels and Royal Caribbean go up and down completely randomly.

Pair Corralation between Wyndham Hotels and Royal Caribbean

Allowing for the 90-day total investment horizon Wyndham Hotels Resorts is expected to under-perform the Royal Caribbean. But the stock apears to be less risky and, when comparing its historical volatility, Wyndham Hotels Resorts is 1.88 times less risky than Royal Caribbean. The stock trades about -0.08 of its potential returns per unit of risk. The Royal Caribbean Cruises is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  23,194  in Royal Caribbean Cruises on December 28, 2024 and sell it today you would lose (1,470) from holding Royal Caribbean Cruises or give up 6.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Wyndham Hotels Resorts  vs.  Royal Caribbean Cruises

Wyndham Hotels Resorts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wyndham Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Royal Caribbean Cruises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Caribbean Cruises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Royal Caribbean is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Wyndham Hotels and Royal Caribbean

The main advantage of trading using opposite Wyndham Hotels and Royal Caribbean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wyndham Hotels position performs unexpectedly, Royal Caribbean can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Royal Caribbean will offset losses from the drop in Royal Caribbean's long position.

The idea behind Wyndham Hotels Resorts and Royal Caribbean Cruises pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.